Arcega vs. Court of Appeals

A suit against the Central Bank for refund of foreign exchange taxes it collected under Republic Act 601 is not a suit against the State, the Bank's charter having expressly authorized it to sue and be sued, and Section 5 of the same statute having directed that refunds be made by the Central Bank.

Petitioner Alicia O. Arcega, doing business under the firm name "Fairmont Ice Cream Company," manufactured and distributed ice cream. She purchased foreign exchange from the Philippine National Bank to cover the costs of importing various goods used in her ice cream operations—food items used as flavors, paper containers and covers, wooden spoons, and machinery, equipment, and spare parts. Section 1 of Republic Act 601, as amended by Republic Acts 1175 and 1197, levied a 17% special excise tax on foreign exchange sales, while Section 2 of the same law exempted certain categories of importations from the tax. Arcega paid a total of ₱18,030.13 in such tax across four categories of importation and sought refund on the ground that the imported items fell within the statutory exemptions.

On August 17, 1956, Alicia O. Arcega, doing business as "Fairmont Ice Cream Company," filed a complaint with the Court of First Instance of Manila, Branch I, docketed as Civil Case 30443, against the Central Bank of the Philippines and the Philippine National Bank, seeking refund of ₱18,030.13 representing payments she made as the 17% special excise tax on foreign exchange levied under Section 1 of Republic Act 601, as amended by Republic Acts 1175 and 1197. The complaint set out four causes of action, each corresponding to a category of imported goods for which she had purchased foreign exchange from the PNB.

Under the first cause of action, Arcega imported coffee roasted, vanilla, fruit cocktail, peaches, butter, and pecan nuts, which she used as "flavors" for her ice cream product. Under the second cause of action, she imported paper containers and corresponding covers specially manufactured by her supplier Sealright Pacific, Ltd., which she used as containers in the manufacture and distribution of ice cream. Under the third cause of action, she imported ice cream wooden spoons, individually wrapped, used as accessories in the manufacture, sale, and retail distribution of ice cream. Under the fourth cause of action, she imported machinery, equipment, and spare parts for use in her factory.

The Philippine National Bank moved to dismiss the complaint, arguing that it failed to state a cause of action because, although the PNB was sued as an agent of the Central Bank, there was no allegation that it had contracted in its own name or exceeded its authority as such agent. The trial court denied the motion. The Central Bank separately moved to dismiss on three grounds: first, that the trial court lacked jurisdiction over the subject matter because the judgment sought would constitute a financial charge against the Government, making the suit one against the State without its consent; second, that the complaint stated no cause of action; and third, that there was a misjoinder of party defendants because neither the Treasurer of the Philippines nor the Secretary of Finance was impleaded, notwithstanding that either of them, representing the Government of the Philippines, was an indispensable party since the foreign exchange tax accrued to the National Treasury and, after December 31, 1955 (the expiry date of the foreign exchange tax law), the authority to order refunds or approve exemptions devolved upon the Secretary of Finance.

After the petitioner filed an opposition, the Central Bank filed a reply, and the petitioner filed a rejoinder, the trial court on November 23, 1956 dismissed the complaint on all three grounds set forth in the Central Bank's motion. The petitioner moved for reconsideration on December 12, 1956. In its opposition, the Central Bank attached a certificate dated December 18, 1956, signed by Jose Carmona, Chief Accountant of the Central Bank, certifying that the balance of ₱7,137,747.71 of the total amount collected as special excise tax on sales of foreign exchange as of December 29, 1955 had been turned over to the Treasurer of the Philippines on June 20, 1956. The trial court denied the motion for reconsideration. The petitioner appealed to the Court of Appeals, which affirmed the dismissal, holding that the suit was indirectly against the Republic of the Philippines, which could not be sued without its consent. The petitioner then interposed the present appeal by certiorari.

• Jurisdiction/Suability: Petitioner maintained that the trial court had jurisdiction over the subject matter of the action, arguing that a suit against the Central Bank for refund of the 17% foreign exchange tax collected under Republic Act 601 was not a suit against the State, the Central Bank being an entity authorized by its charter to sue and be sued.
• Due Process: Petitioner argued that the dismissal of her complaint upon a motion to dismiss constituted a denial of her constitutional right to due process of law, in that such dismissal deprived her of the right to present evidence to prove the truth of the essential allegations of her complaint.

• Lack of Jurisdiction: Respondent Central Bank countered that the trial court had no jurisdiction over the subject matter because the judgment sought would constitute a financial charge against the Government, making the suit one against the State, which could not prosper without its consent, and no such consent had been given.
• No Cause of Action: Respondent Central Bank argued that the complaint stated no cause of action, contending, among other things, that the imported food items listed under the first cause of action were not "flavors" within the meaning of the statutory exemption.
• Misjoinder of Parties: Respondent Central Bank argued that there was a misjoinder of party defendants because neither the Treasurer of the Philippines nor the Secretary of Finance was impleaded, notwithstanding that either was an indispensable party representing the Government of the Philippines, since the foreign exchange tax accrued to the National Treasury and the authority to order refunds devolved upon the Secretary of Finance after December 31, 1955.

• Suability of the Central Bank: Whether the trial court has jurisdiction over the subject matter of the action, or, stated differently, whether a suit against the Central Bank for refund of the 17% foreign exchange tax collected by it under Republic Act 601, as amended, is actually a suit against the State.
• Due Process/Propriety of Dismissal: Assuming arguendo that the trial court has jurisdiction, whether the dismissal of the petitioner's complaint upon a motion to dismiss constitutes a denial of her constitutional right to due process of law in the sense that such dismissal deprived her of the right to present evidence to prove the truth of the essential allegations of her complaint.

• Suability of the Central Bank: No, it is not a suit against the State. The Central Bank is an entity authorized by its charter to sue and be sued, and Section 5 of Republic Act 601 directs that refunds of taxes be made by the Central Bank; the consent of the State to be sued has thereby been given.
• Due Process/Propriety of Dismissal: The Court found it needless to dwell on the alleged denial of constitutional due process, resolving instead each cause of action on its merits. The first and fourth causes of action were improperly dismissed; the second and third were properly dismissed.

• Suability of the Central Bank: The suability of the Central Bank for refund of taxes collected under Republic Act 601, as amended, was upheld in Central Azucarera Don Pedro vs. Central Bank of the Philippines, which ruling was elaborated in Olizon vs. Central Bank to the effect that the suit is brought against the Central Bank, an entity authorized by its charter to sue and be sued, and therefore the consent of the State to be sued has been given. This doctrine was reiterated in Philippines Acetylene Co. vs. Central Bank of the Philippines, where it was pointedly stated that Section 5 of Republic Act 601, as amended, directs that refund of taxes be made by the Central Bank. The fact that the amounts collected had been turned over to the National Treasury did not render the suit one against the State. The courts below therefore erred in dismissing the complaint on the ground that the Central Bank was non-suable.

• Due Process/Propriety of Dismissal: The Court resolved each cause of action individually rather than addressing the due process question in the abstract. As to the first cause of action, the petitioner alleged that coffee roasted, vanilla, fruit cocktail, peaches, butter, and pecan nuts were used as "flavors" for her ice cream product. The Central Bank's motion to dismiss assailed the correctness of that allegation, contending that these items are not "flavors" and that what is exempt under Section 2 of Republic Act 601 is the importation of "flavors." This presented a factual issue that could not be resolved on a motion to dismiss by presuming the averments in the motion to be true and those of the complaint to be false. The court should have either denied the motion, without prejudice to the defendant bank's right to plead the issue as a special defense in its answer, or proceeded to receive evidence on the factual issue thus raised. As to the second and third causes of action, the importation of containers and ice cream wooden spoons could be exempt only if these articles were used by the importer in the manufacture or preparation of a local product and the product so manufactured or prepared was consigned or exported abroad. The complaint contained no allegation that the ice cream wooden spoons and paper containers were used in products consigned or exported abroad, so these causes of action were properly dismissed. As to the fourth cause of action, the complaint lacked particularity: it did not allege (a) when the corresponding letters of credit were opened, (b) the kind of machinery, equipment, accessories, and spare parts imported, (c) when the goods arrived, or (d) when the foreign exchange tax was paid. The proper course would have been to treat the motion to dismiss as one for a bill of particulars and require the petitioner to submit one.

• Suability of Government-Owned or Controlled Corporations — A government entity authorized by its charter to sue and be sued may be sued without further express consent from the State, even for refund of taxes it collected on behalf of the government. The charter provision authorizing suit constitutes the State's consent to be sued. The fact that collected taxes have been turned over to the National Treasury does not transform the action into an unconsented suit against the State where the statute itself directs the entity to make the refund.

• Motion to Dismiss Cannot Resolve Factual Issues — A motion to dismiss that assails the correctness of factual allegations in the complaint, rather than the sufficiency of the allegations themselves, raises a factual issue that cannot be resolved on the pleadings alone. The court should either deny the motion without prejudice to the defendant's right to plead the matter as a special defense in its answer, or receive evidence on the factual issue before resolving it. It is improper to grant the motion by presuming the movant's averments to be true and the complaint's to be false.

• Bill of Particulars as Alternative to Dismissal — Where a complaint states a cause of action but lacks particularity as to details necessary for the defendant to properly respond, the proper remedy is to treat the motion to dismiss as a motion for a bill of particulars and require the plaintiff to provide the needed details, rather than dismissing the complaint outright.

• "This suit is brought against the Central Bank of the Philippines, an entity authorized by its charter to sue and be sued. The consent of the State to thus be sued, therefore, has been given." — This passage, quoted from Olizon vs. Central Bank, articulates the controlling doctrine that a charter provision authorizing suit constitutes the State's consent to be sued, and is the ratio decidendi on the suability issue.

• "It was thus improper for the court a quo to grant the motion upon the presumption that the averment in the motion are true and those of the complaint are not." — This statement defines the rule that a motion to dismiss cannot be granted by resolving a factual dispute in the movant's favor, which is the ratio decidendi on the first cause of action.

• "The proper course of action the trial court should have taken was to treat the motion to dismiss as one for a bill of particulars and consequently require the plaintiff to submit a bill of particulars." — This passage establishes the doctrine that lack of particularity in a complaint should be addressed through a bill of particulars rather than outright dismissal.

• Central Azucarera Don Pedro vs. Central Bank of the Philippines, 104 Phil. 598 (1958) — Controlling precedent upholding the suability of the Central Bank for refund of taxes collected under Republic Act 601; followed and applied in this case.

• Olizon vs. Central Bank, L-16524, June 30, 1964, 11 SCRA 357 — Elaborated the doctrine from Central Azucarera Don Pedro, stating that the Central Bank's charter authorizing it to sue and be sued constitutes the State's consent to be sued; quoted at length in the decision.

• Philippines Acetylene Co. vs. Central Bank of the Philippines, L-17097, September 29, 1964, 12 SCRA 38 — Reiterated the suability doctrine and pointedly stated that Section 5 of Republic Act 601 directs that refunds of taxes be made by the Central Bank; followed.

• Palma vs. Graciano, et al., 99 Phil. 72 — Cited in support of the rule that a motion to dismiss cannot resolve factual issues and that the court should either deny the motion or receive evidence.

• Carreon vs. Province of Pampanga, et al., 99 Phil. 808 — Cited alongside Palma for the same proposition regarding improper resolution of factual issues on a motion to dismiss.

• Salvador vs. Frio, et al., L-25352, May 29, 1970, 33 SCRA 315 — Cited in support of the rule that a complaint lacking particularity should be addressed via a bill of particulars rather than dismissal.

• Section 1, Republic Act 601, as amended by Republic Acts 1175 and 1197 — Levied the 17% special excise tax on sales of foreign exchange. The petitioner paid this tax on her foreign exchange purchases from the PNB and sought refund on the ground that her importations fell within statutory exemptions.

• Section 2, Republic Act 601, as amended — Provided exemptions from the 17% foreign exchange tax, including importation of "flavors" and importation of containers, accessories, machinery, equipment, and spare parts used in the manufacture or preparation of a local product, subject to certain conditions. The Court examined whether each of the petitioner's four causes of action satisfied the requisites of this section.

• Section 5, Republic Act 601, as amended — Directed that refunds of taxes collected under the statute be made by the Central Bank. The Court relied on this provision to conclude that the State's consent to be sued for tax refunds had been given through the Central Bank's charter and the statutory directive.

Makalintal, C.J., Teehankee, Makasiar, and Martin, JJ., concurred.